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A Multi-industry Model of Growth with Financing Constraints

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  • Roberto Samaniego

    (George Washington University)

  • Anna Ilyina

    (International Monetary Fund)

Abstract

We develop a general equilibrium multi-industry model in which firms use external funds to conduct productivity-enhancing R&D. Industries differ in terms of research costs, which lead them to different optimal research expenditures. In the model, more R&D-intensive industries require more external funding, and tend to grow relatively faster in more financially developed environments -- consistent with empirical evidence. As a result, industry composition and the level of financial development have joint implications for aggregate growth and for equilibrium patterns of structural change. Aggregate growth in a financially underdeveloped economy converges to that in a frictionless benchmark economy, so long as its fastest-growing industry is not financially constrained. We show that equilibrium industry dynamics in the model can be approximated using a differences-in-differences industry growth regression that links financial development to industry growth.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 467.

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Date of creation: 2009
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Handle: RePEc:red:sed009:467

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Cited by:
  1. L. Rachel Ngai & Roberto M. Samaniego, 2009. "Accounting for research and productivity growth across industries," LSE Research Online Documents on Economics 25496, London School of Economics and Political Science, LSE Library.
  2. Hanappi, Hardy, 2013. "Money, Credit, Capital and the State: On the evolution of money and institutions," MPRA Paper 47166, University Library of Munich, Germany.

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